Europe’s financial woes and the rapidly worsening global economy will severely hamper New Zealand’s fledgling recovery. “the fall-out from the European sovereign debt mess will depress export growth,” said Shamubeel Eaqub, principal economist at the new Zealand institute of Economic research (NZIER). “it will weigh on exports and tourism, which have hitherto been a buffer.”

In its latest quarterly forecasts, NZIER cut its growth forecast for next year to 1.5%, down from the 2.6% it predicted only three months ago. It also said the central bank would not raise its benchmark interest rate, which stands at a record low of 2.5%, until mid-2013, 12 months later than it forecast earlier.